PARIS France's Danone said on Thursday it would double the size of its U.S. business by buying organic foods producer WhiteWave Foods Co for $10.4 billion in its largest acquisition since 2007.
The purchase will help Danone pursue affluent consumers by adding WhiteWave's popular health food offerings such as Silk almond milk, Earthbound Farm organic salad and Horizon organic milk to its lineup as it struggles in more challenging markets such as Brazil and Russia.
It is the first major transaction by Emmanuel Faber who took over as Danone's chief executive in 2014 and has vowed to return the group to "strong profitable and sustainable growth" by 2020.
Danone, known for its Activia and Actimel yoghurts, said it was offering $56.25 per share in cash, a 24 percent premium to WhiteWave's 30-day average closing price.
WhiteWave's shares rose as much as 19.8 percent to a record $56.82 and remained above the offer price, indicating investors could be expecting a higher bid for the fast-growing company.
"Given that the 24 percent premium is below the 30 percent premium that buyers typically offer in a take-out bid, we think additional bidders entering the fray is a possibility," Jefferies analyst Akshay Jagdale wrote in a client note.
Coca Cola Co, PepsiCo Inc, General Mills Inc, Campbell Soup Co and Kellogg Co have all been mentioned as possible suitors, D.A. Davidson & Co analyst Eric Gottlieb wrote.
WhiteWave has been seen as an attractive target since it was spun off from Dean Foods in 2012.
However, the company said in a regulatory filing that it had agreed not to solicit alternate proposals or hold talks with third parties, "subject to specified exceptions."
WhiteWave will have to pay Danone $310 million if the deal falls apart.
The deal, Danone's largest since the purchase of Dutch baby foods group Numico, is worth $12.5 billion including debt and other liabilities.
"We are creating a truly global leader in line with lasting consumer trends for more healthier options," Faber told a call with analysts.
By 1400 GMT Danone shares were up 2.8 percent at 65.10 euros, after hitting a record high of 67.89 euros.
WhiteWave, which specializes in organic products, has outperformed mainstream packaged food businesses in recent years as consumers shift toward natural foods and healthier eating.
"WhiteWave is the fastest growing U.S food company ... and an excellent fit with Danone, focusing on organic, dairy foods," said Canaccord Genuity Ltd analysts.
The company generates $4 billion of sales and Danone said it would be able to achieve synergies of $300 million by 2020, representing 8 percent of WhiteWave's 2015 sales and 80 percent of WhiteWave 2015 earnings before interest and taxes.
Danone said it expected the deal to increase its influence with retailers, particularly for in-store promotions and shelf space.
Danone is paying about 21.2 times 2016 estimated EBITDA for WhiteWave, above the average multiple of around 15 times in recent dairy deals.
RBC Capital Markets analysts said the deal was "a big stretch financially notwithstanding its obvious strategic attractions".
"It seems to bear many of the hallmarks of 2007's Numico acquisition when Danone paid 21.7 times forecast EBITDA."
The deal will be 100 percent debt-financed and will boost earnings from the first year after closing, Danone said.
"This transaction will create a leading U.S. refrigerated dairy player, as well as one of the top 15 largest U.S. food and beverage manufacturers," Danone said.
After the deal, which is expected to close by year-end, Danone's North America business will increase to 22 percent of Danone's total portfolio from 12 percent.
Lazard and Wachtell, Lipton, Rosen & Katz advised Danone, while Goldman Sachs and Skadden, Arps, Slate, Meagher & Flom advised WhiteWave.
(Additional reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Greg Mahlich and Savio D'Souza)
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Updated Date: Jul 07, 2016 23:30 PM